Monday, November 02, 2015

There was much to be said for U.S. stock markets’
performance during October. Both the Dow Jones Industrial Average and the
Standard & Poor’s 500 Index delivered their best monthly performance in
four years, according to Barron’s.

Any celebration of strong market performance was cut
short when the Commerce Department’s estimate of third quarter U.S. gross
domestic product (GDP) growth was released last week. GDP was in positive
territory, up 1.5 percent for the period, but growth fell short of second quarter’s
3.9 percent, according to the BBC.

The primary reason for the decline was falling
inventories. During third quarter both individuals and companies were worried
about a possible slowdown in global growth. The
Economist reported one reason companies may have reduced inventories is
because they feared demand for goods would not be strong if the world economy
weakens. That didn’t prove out as sales of American goods and services grew by
3 percent during the third quarter. When inventories are excluded, U.S. GDP
growth was 2.9 percent, which many experts would say is pretty healthy growth.

Consumer spending comprises a much bigger part of U.S.
GDP (68 percent) than does private investment by businesses and financial
institutions (17 percent). Consumer spending numbers also were released last
Friday and showed a 0.1 percent increase, which was smaller than many had
expected. Experts cited by BloombergBusiness
suggest that number could move higher if wages improve. The Economist concurred:

“…if the American consumer defies firms’ gloomy
forecasts and continues to spend, investment will eventually return. There is
good reason to believe that will happen. In cash terms, disposable personal
income grew at an annualized pace of 4.8 percent, helped by cheap fuel.
Consumers are more confident about their personal finances than at any time
since 2007, according to the University of Michigan’s latest survey.”

Stay tuned. Information about U.S. jobs will be
released next week. In theory, each piece of data should help investors gain a better
understanding of what’s happening economically.

Data as of 10/30/15

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

0.2%

1.0%

4.3%

13.8%

11.9%

5.6%

Dow Jones Global ex-U.S.

-0.7

-3.2

-5.3

2.9

0.4

1.8

10-year Treasury Note (Yield Only)

2.2

NA

2.3

1.7

2.6

4.6

Gold (per ounce)

-1.6

-4.8

-5.0

-12.7

-3.4

9.3

Bloomberg Commodity Index

0.0

-16.2

-25.9

-15.0

-10.0

-6.2

DJ Equity All REIT Total
Return Index

-0.7

1.7

6.2

11.4

11.8

7.7

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.

Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.

most Americans agree. In a recent newsletter, Jeremy Grantham of GMO, a global
investment management firm, discussed research on wealth inequality conducted by
Duke University Professor of Psychology and Behavioral Economics, Dan Ariely,
and Professor of Business Administration at the Harvard Business School, Michael Norton. Grantham wrote:

“The
title of the article pretty much says it all: “Americans want to live in a much
more equal country (they just don’t realize it)”. The guts of the data is a
survey of over 5,000 Americans, carefully selected to be a balanced
representation of the population. They were first asked how equal they believed
a society should be in income and capital, and then asked how equal they
believed it was in real life… Self-identification as Republican or Democrat
made surprisingly little difference. The exhibit’s real shocker is the actual
distribution of wealth, which is far worse than the participants believed and
far, far worse than they believed to be fair.”

Study participants were given a choice of three
wealth distribution models and the directive to “imagine that if you joined
this nation, you would be randomly assigned to a place in the distribution, so
you could end up anywhere in this distribution, from the very richest to the
very poorest.”

So,
what did Americans want?

Overall, study participants chose imperfect wealth
distribution over perfect wealth distribution. However, more than 90 percent of
Republicans and more than 90 percent of Democrats preferred a model with more
equal distribution of wealth (11 percent in the poorest quintile, 21 percent in
the second poorest, 15 percent in the next, 36 percent in the second richest,
and 18 percent in the richest quintile) than the actual wealth distribution in
the U.S. at the time (84 percent in the poorest quintile, 11 percent in the
second poorest, 4 percent in the next, 0.2 percent in the second richest, and
0.1 percent in the richest quintile). Estimates of ideal wealth distribution
were relatively similar across gender and income levels, as well.

Weekly
Focus – Think About It

“I think the American Dream used to be
achieving one's goals in your field of choice – and from that, all other things
would follow. Now, I think the dream has morphed into the pursuit of money:
Accumulate enough of it, and the rest will follow.”

expenses, or sales charges.
Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.

Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.

* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.

The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.

* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.

* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.

* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.

* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.

* Consult your financial
professional before making any investment decision.

* Stock investing involves
risk including loss of principal.

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